4
However, individuals who choose to establish their business as a partnership, corporation, or limited
liability company may be covered as employees and may receive workers’ compensation benefits
from their partnership, corporation, or limited liability company. Information on forming partnerships,
corporations, or limited liability companies may be obtained by contacting the Corporations and
Securities Bureau at the following website: https://www.michigan.gov/lara/bureau-list/cscl/corps or
by phone at 517-241-6470.
11. Who is an independent contractor?
An independent contractor is one who maintains a separate business and holds himself or herself
out to and renders service to the public.
Generally, a person cannot become an independent contractor just because he or she wants to be,
or because an employer wants the person to be an independent contractor. It is not enough that
the employee and the employer agree. If a person only works for one business and is directed and
controlled by that business, the person probably is an employee and not an independent contractor.
The “20-factor test” announced by the IRS in Revenue Ruling 87-41, 1 C.B.296 further defines the
employee-employer relationship. You may wish to consult your attorney for further explanation.
Question 13 discusses some key elements of an independent contractor relationship.
12. A general contractor employs a subcontractor which is a sole proprietorship with no
employees. Can the insurance company auditor charge the general contractor premium on
money paid to the subcontractor?
No, however, it is the responsibility of the general contractor to provide reasonable proof to his or
her insurance company that the subcontractor is a sole proprietorship with no employees. The
following proofs may be used. For additional proofs, see Bulletin 89-03 on page 7 of this booklet.
a. The Federal Identification Number of the sole proprietorship.
b. A copy of the written contract between the sole proprietorship and the general contractor.
c. A list of other general contractors for whom the sole proprietorship has worked recently and/or
is currently working for.
d. A copy of the assumed name certificate which the sole proprietorship has on file with the county.
e. Proof that the sole proprietorship is paid by the job and an IRS 1099 form is given to the sole
proprietorship by the general contractor at the end of the year.
f. A sworn statement from the sole proprietor that he or she has no employees.
g. An advertisement that shows the sole proprietorship is available to work for others.
If the insurance auditor does not accept reasonable proof, the general contractor should request
in writing another payroll audit from the insurance company. If the premium is not waived after
the re-audit, the general contractor may appeal to the Department of Insurance and Financial
Services and request a hearing to resolve the premium dispute.